1. Technical Field
The present invention relates to systems and methods for analyzing a business's profitability on a customer-by-customer basis.
2. Background Information
Profit is the fundamental measure of a business's success. Improving profits is the key to improving business performance. Most businesses monitor profits based on the products or services they sell. Under this model profits are calculated by subtracting the costs associated with producing and distributing a product, or providing a service, from the revenue generated by the sale of the product or service. Underperforming products or services are easily identified by their low profitability. Once under performing products or services are identified, steps may be taken to improve their performance. For example, the price of a product or service may be raised in order to increase revenue, or production or delivery processes may be improved to maximize efficiencies and reduce costs. Alternatively, poorly performing products and services may simply be discontinued, leaving the business to concentrate its efforts on more profitable ventures.
Analyzing the profits generated by individual products and services, however, only provides a portion of the overall profitability picture. Products and services are consumed by customers. For numerous and varied reasons some customers may be more profitable than others. For example, a company in the business of providing telecommunications services may have several different types of customers. Some may be business customers and some may be residential customers, some may be heavy talkers who use their telephones often, while others rarely use their phones at all. Still others may be moderate chatters falling somewhere inbetween. Furthermore, different customers may subscribe to different service plans. Some may pay for large blocks of minutes each month, while others may purchase smaller blocks of access time but are required to pay additional fees if they go over their allotted time. Some customers may purchase pre-paid phone cards, while others are billed for their usage at the end of each month. All of these factors and more may contribute to the overall profitability of individual customers such that some customers are more profitable than others.
Due to the large number of variables involved, it is not easy to predict or determine which customers will be the most profitable. Often the answer is not intuitive. For example, heavy talkers may pay higher monthly fees for more minutes of access each month than do moderate chatters. Thus, one might be led to believe that heavy talkers would be more profitable than moderate chatters. However, heavy talkers may initiate many more calls to parties outside the service provider's network, incurring termination fees that must be paid to other telecommunications service providers. These additional fees are costs that reduce profits to the point where heavy talkers may be less profitable than moderate chatters. This is useful information for the telecommunications service provider to know. Steps taken to increase usage by customers who rarely use their phones may have a more significant impact on overall profitability than efforts to increase the usage of moderate chatterers. Such business intelligence provides a clear direction for future marketing campaigns.
Analyzing the profitability of individual customers and groups of customers can provide valuable business intelligence to a telecommunications service provider or operators of other types of businesses. Knowing who a business's most profitable customers are, and who are the least profitable allows an organization to allocate marketing, sales, product development and customer service efforts and resources according to the potential value provided by individual customers or classes of customers.
Heretofore the complexities of allocating heterogeneous costs and revenues to individual customers have prevented businesses from determining the profitability and value of individual customers within the business's customer base. The lack of such systems has prevented businesses from organizing their customer relationship efforts on an individual customer value basis. When data identifying customers who are the most profitable and those who not are available, almost every aspect of the customer relationship can be refocused. Businesses can identify which customers must be given the highest priority in order to retain high profit customers. Likewise, businesses can determine which customers are the least profitable and who are not worth extensive customer service efforts to keep satisfied. When combined with various customer attribute data such as service plans, type of customer, market segment, and the like, the insights into the sources of profitability can be enlightening and profound.